SA’s economic growth estimate looks bleak

SA’s economic growth estimate looks bleak
The International Monetary Fund’s forecast for South Africa is growth of just 0.9% for the year, whereas Oxford Economics Africa’s is 0.7%. (Image: Freepik)

The country’s economy performed pretty dismally in the first quarter of 2024, setting the stage for another year of poor growth.

South African voters went to the polls on 29 May against the backdrop of an economy that remains stuck in low gear.

On 4 June Statistics South Africa will unveil the gross domestic product (GDP) data for the first quarter (Q1) of 2024, and all the indicators point to an economy that hardly grew or possibly contracted.

“A contraction at this stage looks like the most plausible outcome looking at the data,” Jee-A van der Linde, senior economist at Oxford Economics Africa, told Daily Maverick.

Momentum going into Q1 was poor after the economy barely dodged a recession in Q4 2023, with growth of just 0.1% on a quarterly and seasonally adjusted basis.

February was marked by Stage 6 of the rolling power cuts dubbed “load shedding” by Eskom and mounting logistical woes constraining business and economic activity.

The devil is in the data, and for the first three months of this year it was generally dire. The unemployment rate rose to 32.9% in the quarter from 32.1% in the last quarter of 2023, underscoring the point that South Africa’s slow-growth trajectory has led to “job shedding”.

Consumers remain under pressure, as the impact of elevated interest rates continues to take its toll on confidence and spending.

Retail trade sales in March rose 2.3% year-on-year, but for the three months to the end of March fell 0.9% compared with the previous three-month period. This means retail trade sales will be a drag on the quarterly GDP data published on 4 June.

The key mining and manufacturing sectors will also weigh on the GDP data when measured on a quarterly basis.

Mining production tanked 5.8% on a year-on-year basis in March and 5.0% compared with the previous month. That all adds up to a fall in Q1 mining output of 1.7% compared with the last quarter of 2023.

Manufacturing production plunged 6.4% year-on-year in March after showing robust annual growth in January and February. As a result, on a quarter-on-quarter basis it posted a 1.0% decline.

Some economists see growth of up to 0.3% or so, but it’s all very tepid and a decimal point here or there will mean the difference between a contraction, a flatline or a very meagre bounce.

Overall, the economic growth outlook for South Africa for 2024 is bleak. The International Monetary Fund’s forecast is for growth of just 0.9% for the year, whereas Oxford Economics Africa’s is 0.7%.

That is far from what is needed to generate meaningful job creation in the face of a growing population.

A low bar

Growth in the current quarter will probably exceed the woeful performance of Q1, but the bar remains pretty low.

In this quarter, which kicked off on 1 April, there have been no nationwide rotational power cuts as we went to press, which should be giving the economy a much-needed boost of energy and confidence.

Eskom has denied this is because it is burning diesel ahead of the elections and has pointed to a long-awaited improvement in its ageing fleet of coal-powered stations, which in turn has boosted its energy availability factor.

It’s also transparently the case that the scramble by middle- and upper-class households and businesses, big and small, to install rooftop solar and other sources of self-generated renewable energy has eased pressure on the grid.

Private solar capacity alone at the end of January was 5,400MW, exceeding the generation capacity of 4,800MW for each of Eskom’s newest and problematic power stations, Medupi and Kusile.

The power crisis has for years been the main constraint to economic growth and investor confidence in Africa’s most industrialised economy – which has been deindustrialising as a result – and so any light at the end of that long tunnel is bound to lift economic activity.

The data on that front shows some tentative green shoots.

The Absa Purchasing Managers’ Index, a key measure of confidence in South Africa’s manufacturing sector, rose briskly back into positive territory in April as the lights stayed on.

But its reading of 54, compared with 49.2 in March, was hardly shooting the lights out, as the range is zero to 100.

It remains an open question as to whether or not the suddenly reliable power supplies – and improved investor sentiment about the unfolding political outlook stemming from the elections – remain in place in June as the poll results come in.

Both will have a potentially big impact on economic growth in June – the last month of this quarter – and the rest of the year. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.


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